WTO on the brink, needs a rethink

The Mexican countryside has suffered under the free trade agreement with the US [Reuters]

Trade ministers meet in Bali, Indonesia December 3-6 in a last ditch effort to salvage the global trading regime. These world trade talks, under the auspices of the World Trade Organisation (WTO) are doomed to fail unless trade ministers re-frame the benefits of globalisation. Developing country growth is not a zero-sum game, but an opportunity for more trade and a more just world.

The United States and other higher income countries want to increase the global market share of those sectors where they currently enjoy a relative advantage. For the US that means breaking into developing country financial, intellectual property, health, and hi-tech markets.

Developing countries view globalisation through a different lens. Yes, they, too, want to increase global market share where they currently have an advantage. That means pushing to dismantle the highly distortive agricultural and labour markets in higher income countries, as well as the remaining tariffs on manufacturing goods.

Developing countries - that house three billion poor of which almost one billion are hungry - also want to ensure that their consumers and farmers are not victimised by huge swings in food prices. When prices are too high, poorer urban consumers have trouble putting food on the table. When prices are too low farmers lose out, leave the countryside, and join those urban poor. This translates into high economic cost, lost livelihoods, and lost elections.

Many developing countries also see globalisation as a way to gain market share for sectors where they do not yet have an advantage. Developing countries don't want to be stuck in a world where they export highly volatile commodities in return for importing high technology products, consumer goods, and financial services from higher income countries.

Developing countries - that house three US poor of which almost one US are hungry - also want to ensure that their consumers and farmers are not victimised by huge swings in food prices.

Every successful country has diversified its economy away from a reliance on agriculture and primary commodities. In so doing, the government played a role in fostering such diversification. French development banks fostered industry to spur that country into the industrial revolution. The US buffered the New England textiles industry to catch-up to Great Britain. Brazil incubated what is now a world-class class aircraft industry. Japan and South Korea fostered innovation in the car and electronics industries to gain global market share. And of course China has become the manufacturing power-house of the world.

Unfortunately the higher income countries have seen this as a zero-sum game. If the South gains, the North loses. Trade and investment deals that take away the tools of diversification hinder the ability of nations to grow. When countries don't grow they don't import either.

Take Mexico under the North American Free Trade Agreement (NAFTA). NAFTA gave Mexico exclusive access to the US market - the largest in the world. Yet Mexico has hardly experienced significant per capita growth in the twenty years since NAFTA was signed. Access to the US market for Mexico was conditioned on ignoring the distortions in the US agricultural market and on deregulating financial and industrialisation policies. Distortionary US corn exports put massive pressure on the Mexican countryside.

Deregulation has led to financial instability, de-industrialisation, and slow growth. This was not in the US interest. If Mexico had the tools to grow (and took advantage of them), it would have created a big demand for US exports. Instead, the US has a significant deficit with Mexico.

There needs to be a WTO "rethink" to move beyond this "clash of globalisations." Yet Western companies that stand to win from these trade deals - big agribusiness and pharmaceuticals firms, Wall Street banks, and manufacturing firms seeking to outsource - are highly concentrated and politically organised while the losers are very diffuse and unorganised. These big winning sectors flood Washington with lobbyists and campaign contributions, while workers in the North and South, farmers in developing countries, and fledgling start-up companies in the developing world lack the coordination and cash to put up a fight.

The result is lopsided deals that accentuate national and global inequalities. But the US officially abandoned multilateralism in the trading regime during the administration of George W Bush. Barack Obama's administration has continued this policy, despite pledges to do otherwise.

The WTO has come a long way in the past 10 years, but powerful interest groups may keep the US from bringing the negotiations to a close. When the current round of negotiations started, the West was pushing the deregulation of financial markets, of investment measures, and for intellectual property rules that would make it hard for countries to innovate and provide medicine to the poor. Much of that agenda has been scrapped, but the US won't let food security be on the table.

The WTO can declare victory this week, if it votes on a global deal that will improve customs procedures, and if it grants developing nations the ability to support its poor farmers and consumers in the face of food price volatility. The US has been antagonistic to this proposal over the past week. It seems that the US would rather have the advantage it exploits in regional and bi-lateral deals at the expense of its citizens and global development.

A global trade regime is far superior to the knots of regional and bi-lateral trade agreements that proliferated around the globe, as the WTO was pushed to the wayside. Regional trade deals distort trade away from the nations that have true comparative advantages, allow more economically powerful countries to give weaker states quid pro quos, and have expanded into issues such as finance, intellectual property and environmental regulations that are best left to their respective regimes. It is not too late for the US to salvage the best option we have for global trade governance, the WTO.